January 11, 2017

Elasticity of Demand

Elasticity of demand: Measure of how consumers react to a change in price.

Elastic demand

• Demand that is very sensitive to a change in price
• Product is not a necessity
• Always greater than 1
• Available substitutes
• Example: soda, coats, steak

Inelastic demand

• Demand that is not very sensitive to a change in price
• Product is a necessity
• Few/ no substitutes
• Less than one
• Example: gas, insulin

Unitary elastic

• Equal to one (in a perfect society)

Total Revenue: total amount of money a company receives from selling goods and services.

   Formula: Price x Quantity